Earnings catch up: Dassault Systèmes reports solid Q4, guides to slow start to 2023

Dassault Systèmes recently reported Q4 2022 revenue of €1,584 million, up 16% as reported and up 10% in constant currencies (cc). Software revenue was €1,429 million, up 15% (up 9% cc). For the year, total revenue was €5,665 million, up 17% (up 9% cc), while software revenue was €5114 million, up 16% (up 9% cc).

For Q4:

• By revenue type, software revenue was €1429 million, up 15% (up 9% cc). Within that, license and other software revenue was €379 million, up 9% (up 5% cc), while subscription and support revenue was €1,050 million up 18% (up 11% cc)
• By product line, software revenue from the Industrial Innovation brands was up 11% cc to €779 million. The company said, “CATIA continued to perform well, up mid-single-digits, with excellent results in Cyber-Systems, again this quarter. ENOVIA delivered extremely strong software revenue growth, and SIMULIA was also up double-digits during the quarter”
• Software revenue from the Life Sciences brands was up 12% cc to €303 million. Within this category, “MEDIDATA continued to deliver strong performance, driven by broad-based growth across product lines and end-markets. BIOVIA grew mid-single-digits, benefiting from significant customer adoption in life sciences as well as in materials science”
• Finally, Mainstream Innovation software revenue was €347 million, up 3% cc over last year (just like in Q3). “China’s shutdowns remained a headwind, affecting Mainstream Innovation results during the period.” Recall that Mainstream includes CENTRIC PLM and 3DVIA, as well as the 3DEXPERIENCE WORKS and SOLIDWORKS
• 3DEXPERIENCE revenue was up 24% and now represents 37% of software revenue. TBH, I’m still surprised by the slow rate at which this is growing.
• Cloud software revenue grew 22% and represented 22% of software revenue
• Recurring software revenue —the holy grail when discussing the reasons for moving to subscriptions — was up 11% cc in the quarter to 1,050 million and now accounts for 78% of total software revenue
• By geo, revenue from the Americas was €579 million, up 26% (up 13%) — DS says this “acceleration [was] driven by strong performance in Life Sciences, Aerospace and High Tech [and] Continued momentum in subscription [sales].” Revenue from Europe was €535 million, up 9% (up 6%), and was characterized as “resilien[t], driven by Transportation & Mobility and Aerospace.” Finally, revenue from Asia was €315 million, up 9% (up 7%), on double-digit growth in Korea and India and “Good performance in Japan.” Revenue from China was “up low mid- single-digits due to COVID-19 restrictions” and affected SOLIDWORKS’ performance in the quarter

DS laid out financial objectives for 2023, with revenue between €5,925 million and €5,975, up 5% at the midpoint (up 8% to 9% cc). DS CEO Bernard Charles was clear that his goals for 2023 include no layoffs; the company will control costs by adjusting its hiring rate and discretionary spending. For Q1, the company set a revenue target of between €1,418 million to €1,443 million, up 7% to 9%, with software revenue expected to be up 7% to 9%. 

TL;DR. So. Many. Numbers. What does it all mean?

It was another OK report in our PLMish world, signaling caution for at least the early part of 2023. Q4 license growth was a bit better than expected —possibly due to discounting and promotions at the end of Q4— but the real news from the day was that Q1 2023 guidance was 3% to 5% weaker than many investors expected. The company still gets just over 20% of revenue from upfront licenses, which may be tough to close in a more challenging economic environment. It also has significant exposure to the SMB market, which may struggle in an economic downturn. There are still uncertainties about China being open or closed … Combined, this could lead to a dip in license revenue in the first half of the year, with a recovery later on.

All that said, DS is going to be fine. It’s a juggernaut that has weathered economic crises before — and is better placed now than in the past, with the shift to subscriptions and broad end-industry and geo exposure. 

Yesterday I posted a quick Siemens Digital Industries Software earnings recap. I asked you to note that its revenue in calendar 2022 was €4.681 billion, up about 6% as reported from the prior year. Since I’m often asked which company is larger (honestly, not that useful a metric, a topic for another day), let’s look a bit closer. DS reported FY 2022 revenue of €5.665 billion, up 17%. On a total software revenue basis, DS is bigger, though Siemens AG at €72.0 billion in FY 2022 is a far bigger enterprise as a whole. A lot of DS’ growth comes from Medidata; the brands that are most comparable to Siemens DI Software were up, but not at Medidata’s mid/upper-teens levels. DS said CATIA was up “mid-single digits”, ENOVIA was “strong”, SOLIDWORKS was maybe up 3% — I would therefore argue that in the ways that matter to auto/aero/manufacturing and the other traditional PLM verticals, these companies are in a dead heat, absolutely even, given the precision we can put on both size and growth calculations.

Oh, and before I forget: Pascal Daloz, formerly CFO and COO, has been named deputy CEO to Bernard Charles, who remains Chairman and CEO. M. Daloz retains his COO title as well. Rouven Bergmann continues as CFO.

Much more on DS’ Q4 results here.